Thursday July 17 Housing and Economic stories

Top Stories:

Let the Lawsuits Begin! - (www.webofdebt.com) In an article in The San Francisco Chronicle in December 2007, attorney Sean Olender suggested that the real reason for the subprime bailout schemes being proposed by the U.S. Treasury Department was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. The plan then on the table was an interest rate freeze on a limited number of subprime loans. Olender wrote: “The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process. “. . The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC . . . . “What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.” The thought could send a chill through even the most powerful of investment bankers, including Treasury Secretary Henry Paulson himself, who was head of Goldman Sachs during the heyday of toxic subprime paper-writing from 2004 to 2006.

Short-sellers caught out by higher costs - (www.ft.com) - The cost of borrowing shares for short sales on Wall Street has been rising steeply in recent weeks, hampering the ability of hedge funds and other sophisticated traders to profit from market declines. The Securities and Exchange Commission on Tuesday revealed emergency action to clamp down on abusive short-selling, making it more difficult for traders to engage in so-called “naked” short sales of leading financial firms.

SEC Restricts Shorting 19 Financial Stocks - (Mish at globaleconomicanalysis.blogspot.com) Big brother has now decided to step in and force the price of all financial stocks up with this SEC short sale order. The U.S. Securities and Exchange Commission issued an emergency order on Tuesday placing restrictions on the short selling of shares of certain major financial firms. The SEC's order will require that anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement. The order takes effect Monday, July 21, and will terminate at the end of July 29. The SEC said the order may be extended, but for no more than 30 calendar days in total duration. The agency identified the following securities affected by its order:
BNP Paribas Securities Corp, Bank of America Corp, Barclays PLC, Citigroup Inc, Credit Suisse Group, Daiwa Securities Group Inc, Deutsche Bank Group AG, Allianz SE, Goldman Sachs Group Inc, Royal Bank ADS, HSBC Holdings Plc ADS, JPMorgan Chase & Co, Lehman Brothers Holdings Inc, Merrill Lynch & Co Inc, Mizuho Financial Group Inc, Morgan Stanley, UBS AG, Freddie Mac, Fannie Mae

SEC Panic - Shorting Curbs Placed on GSE Stocks - (Mish at globaleconomicanalysis.blogspot.com)

Senators Bunning and Shelby Blast Bernanke - (Mish at globaleconomicanalysis.blogspot.com) In an unusual but encouraging development, someone besides Ron Paul is calling Bernanke on his hogwash. Please consider Bunning Statement To The Senate Banking Committee On The Federal Reserve Monetary Policy Report. As Prepared For Delivery:
Thank you, Mr. Chairman. I know we have a lot of ground to cover today, but I want to say a few things on the topic of this hearing and of the next. First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans. Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount. Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation. Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this. And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?

Credit fallout is just beginning - (articles.moneycentral.msn.com) A shrewd observer of the US credit mess says the problems are 'considerably worse' than reported. He's betting on financial-system upheaval, failing companies and an even-slower economy. The problems gripping the credit arena continue to occupy the headlines. This week, I would like to share like-minded comments from Ted Forstmann, IMG's chairman and CEO. In a recent Wall Street Journal interview, Forstmann warned: "We are in a credit crisis the likes of which I've never seen in my lifetime. . . . The credit problems in this country are considerably worse than people have said or know. . . . It's hard for me to believe that it gets fixed without upheaval in the financial system. Things are going to fail. Enterprises are going to fail. The economy is going to slow."

IndyMac reopens as worried customers check on their accounts - (www.ocregister.com) Government basically not telling the truth in saying that majority of deposits are insured. $1B out of $19B are not expected to be insured. DAY OF FRUSTRATION: A woman sits down after nearly fainting while waiting in line with over a hundred others at the IndyMac Bank in Mission Viejo. The institution was taken over by the FDIC after a bank run. The woman, who didn't wish to be identified, said she had a large account in the bank.

Police Brought In On Unruly IndyMac Crowd - (www.10news.com) For many of the customers who waited outside what is now IndyMac Federal Bank, the worries were the same: How much money they would get back and when? Some 10,000 depositors had funds spilling over insured limit, for a total of $1 billion in potentially uninsured funds. On Monday, they waited as long as seven hours at some branches to talk to bank officials and find out the fate of their savings. One woman won a round of applause when she walked out of the bank with a check in hand.

Customers furious over Indymac bank takeover - (nypost.com) At least three police squad cars showed up early Tuesday as tensions rose outside the San Fernando Valley branch of Pasadena-based IndyMac. Federal regulators seized Pasadena-based IndyMac on Friday and reopened the bank Monday under the control of the Federal Deposit Insurance Corporation. Deposits to $100,000 are fully insured by the FDIC. Worried customers with deposits in excess of insured limits flooded IndyMac Bank branches on Monday, demanding to withdraw as much money as they could or get answers about the fate of their funds.

Bush Asserts U.S. Banking System Sound - (www.10news.com) Is Bush in touch with reality or just blatantly lying? I think the system basically is sound, I truly do," Bush said. "I understand there's a lot of nervousness. The economy is growing. Productivity is high. Trade's up. People are working -- it's not as good as we'd like. And to the extent that we'll find weakness, we'll move."

FDIC halts foreclosure on IndyMac mortgages - (www.reuters.com) Ken comment: This is very bizarre and inappropriate behavior for the head of the FDIC to be making a decision like this:
The Federal Deposit Insurance Corp has temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans found in IndyMac's portfolio, FDIC Chairman Sheila Bair said on Monday. Bair has scolded mortgage lenders for being too slow to help distressed borrowers restructure their home loans. "Modified loans will be worth more than foreclosed loans," she said in an interview on CNBC television. IndyMac, which the FDIC took over after it failed on Friday, had a $200 billion mortgage servicing portfolio.

Fannie and Freddie Lavishing Contributions on Jesse Jackson - (www.marketwatch.com) The National Legal and Policy Center (NLPC) today criticized the managements of Fannie Mae (FNM) and Freddie Mac (FRE) for their recent sponsorship of the Rainbow/PUSH Coalition and Citizenship Education Fund Annual Conference. The event took place June 28 through July 2 in Chicago. It is Jesse Jackson's main fundraising event of the year. According to the conference program, Freddie Mac was a "Platinum Sponsor," a designation costing $150,000, and Fannie Mae was a "Diamond Sponsor," a designation costing $100,000. Fannie and Freddie are so-called Government Sponsored Enterprises (GSE) that own and guarantee mortgage securities. Shares of each are down approximately 85% in the last year. On Saturday, the Treasury announced it would offer a line of credit to help ensure the survival of each company. NLPC President Peter Flaherty said, "It is outrageous that rapidly evaporating shareholder equity is still being dished out to Jesse Jackson. The CEOs of these companies have repeatedly shown poor judgment, and this is just more evidence."



Other Stories:

Recession-Plagued Nation Demands New Bubble To Invest In - (www.theonion.com)

Contact Your Senator: Say No To Fannie Bailout - (www.ml-implode.com) - "Hats off Shelby and Bunning. The latter is threatening to Filibuster Paulson's proposed bailout of Fannie Mae and Freddie Mac. ...
Did Fannie Mae Dividend Halt Lead To The Cox Rule? - (www.ml-implode.com) - ""The rule makes shorting more difficult, which looks like an attempt to balance the pro-shorting effect of the dividend cut," t...
Downey Savings Paid Brokers up to $50k Commission ON EACH LOAN! - (www.ml-implode.com) - "Did you know that they paid their mortgage broker clients up to $50k PER LOAN in rebate-based commission? They allowed this up...
Mr Mortgage: June CA Foreclosure Report…Conditions Arguably Worsen - (www.ml-implode.com) - "It is that time of the month again folks! The June monthly CA foreclosure report is ready, data courtesy of Foreclosure Radar. ...
Roubini on Bloomberg TV - (www.ml-implode.com)
Mortgage Applications Rise Slightly - (www.ml-implode.com)
Idiots Fiddle While Rome Burns - (www.ml-implode.com)
Inflation up most in 26 years - (www.ml-implode.com)
US faces global funding crisis, warns Merrill Lynch - (www.ml-implode.com)
One Million Foreclosures By Year's End Housing Tracker - (www.seekingalpha.com)
Punishing Savers: How US Encourages Irresponsible Finance - (www.mybudget360.com)
Canadian house prices slip for first time in nine years - (www.reportonbusiness.com)
Event Horizon - (jameshowardkunstler.typepad.com)
It's Lovely! I'll Take It! - (lovelylisting.blogspot.com)
Opposition, From Both Parties, Over Bailout Plan - (www.ml-implode.com)
SEC Report On Examination of Credit Ratings Agencies - (www.ml-implode.com)
SEC Preparing For the Perfect Storm? - (www.ml-implode.com)
Bush: This Isn’t A Bailout - (www.ml-implode.com)
Fannie Mae, Freddie Mac ratings cut - (www.ml-implode.com)

U.S. Treasuries Decline as Inflation Rises More Than Forecast - (www.bloomberg.com)
Oil Falls More Than $4 on Report of Unexpected Supply Increase - (www.bloomberg.com)
Stocks soar on drop in oil, Wells Fargo report - (www.ap.com)

Subprime-Related Litigation on the Rise - (www.researchrecap.com)
Why Barron's Housing Cover Is So Terribly Wrong - (bigpicture.typepad.com)
Can you get a mortgage with a 480 Credit Score? - (eyeonmiami.blogspot.com)
Money move may bring some relief, but real fix depends on Congress - (www.delawareonline.com)
Confessions of a subprime lender: 3 of my worst loans - (money.cnn.com)

U.S. Consumer Prices Climb the Most in 26 Years as Fuel, Food Costs Jump - (www.bloomberg.com)
Bernanke highlights risks facing US economy - (www.ft.com)
Leaders running out of economic options - (www.signonsandiego.com)
An Economy Thrown Into Turmoil - (www.washingtonpost.com)
Economic pain: 'Payback' for debt-fueled growth? - (www.usatoday.com)
Wall Street Journal to raise price to $2 - (www.reuters.com)
Bernanke Remarks On Housing Market and Credit Crunch - (www.washingtonpost.com)

Convertible bonds tumble amid forced selling - (www.ft.com)
Manufacturers battle to pass on rising costs - (www.ft.com)
SEC set to fight short selling of financials - (www.ft.com)
Cost of corporate credit set to rise - (www.ft.com)
Paulson Pounded by Investors as He Seeks to Halt Market Crisis - (www.bloomberg.com)
Annual housing price decline now tops 25 percent - (www.signonsandiego.com)
SEC Subpoenas Wall Street in Hunt for `Manipulators' - (www.bloomberg.com)
Fannie-Freddie Flu Hits Asian Banks - (online.wsj.com)

GM suspends dividend and eyes asset sales - (www.ft.com)
Fannie Mae, Freddie Mac May Halt Dividends on Losses - (www.bloomberg.com)
Major airlines taking huge one-time charges - (www.dallasnews.com)
Record Store Closings - (online.wsj.com)
Gas stations say credit card fees are pinching meager profits - (www.dallasnews.com)
Fuel costs bite into farm budgets - (www.signonsandiego.com)
Patients Curb Prescription Spending - (online.wsj.com)

UK consumer inflation hits 16-year peak - (www.ft.com)
European Inflation Accelerates to 4% as Oil Prices Reach Record - (www.bloomberg.com)
Bank of Japan downgrades growth forecasts - (www.ft.com)
U.K. Unemployment Jumped the Most Since 1992 in June - (www.bloomberg.com)
Europe told to expect doubled gas price - (www.ft.com)
Thailand Raises Rate to Cool Prices; May Act Again - (www.bloomberg.com)

Police show up at IndyMac Branches in Encino, Northridge as waiting customers clash - (www.latimes.com)
On the Outside Now, Watching Fannie Falter - (www.washingtonpost.com)
Homeowners May Be Twice Burned as Insurers Cap Policy Coverage - (www.bloomberg.com)